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How to Navigate Expensive Debt

Updated: Mar 14

Tips to navigate a more expensive world of debt when the cost of borrowing is spendy

Tips to navigate a more expensive world of debt when the cost of borrowing rises and “affordable debt” tanks

Before we can understand how to navigate expensive debt, we have to lay down the basic tenets of debt. Or, in other words, the key pieces to the borrowing puzzle.

Key variables in debt and borrowing

  • Federal rate: The Federal Funds rate is the rate at which banks charge one another interest for their overnight lending—something they do to meet reserve requirements, and subsequently impacts the entire financial market. From late 2008 through mid-2017, this rate sat below 1%, only trickling up to a 2.4% crest in 2019 and falling back to 0% during the pandemic (2020-2022). As of early 2024, the new, historic average is closer to 5%.

  • The prime rate: The prime rate is the interest rate that commercial banks charge creditworthy customers. Banks generally use fed funds rate + 3% to determine the current prime rate. Because this rate is preceded by the Federal Funds rate, it tracks right along with it.

  • Mortgage rates: Mortgages usually bear the brunt of the Fed and its interest rate swings. However, mortgage rates were unsustainably low, not having topped 5% between 2010 and 2022. Historically, the average 30-year fixed-rate mortgage has clocked in at 7.76%.

How the economy affects your wallet

As a result of economic moves, such as the pandemic stimulus and changes in interest rates, Americans can feel the pinch of inflation, unaffordable debt, and concerns for the future.

In 2022, for example, the Federal Reserve enacted record rate hikes, raising the cost of debt across the board in an already expensive environment.

Planning for changes to debt and borrowing costs

  • Investing: The rising cost of debt can take a toll on the market, creating a more volatile situation. Investors watch for Fed news like hawks (no pun intended) and react to news of more rate hikes. The markets will take dips and dives, but history is on our side. The right time to invest is now, later, and forever, and we wouldn’t suggest taking your foot off the pedal just because of the uncertainty. (That’s why we’re big fans of diversification!)

  • Debt overall: Handle debt of all kinds with prudence and make shrewd decisions. Don’t take on credit card debt if you don’t have to, use credit cards for their benefits, and make timely payments to avoid paying higher interest payments. Take a look at your student loans and see if you’re eligible for forgiveness or restructuring them with a new lender for a better rate.

  • Homeownership: We’re big fans of equity. When home prices cool, it’s more important to keep paying down your mortgage and racking up that equity if you can.


Debt may be a part of life, but it doesn’t have to take over it!

Sure, debt management requires care, planning, and due diligence. Pop into the Pocketnest app and get working at your Debt Elimination Plan. It only takes about 3 minutes and you’ll set yourself up for success. Let’s do this!


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